Bill aims to raise revenue by ensuring out-of-staters pay tax on real estate sales

By Charles Johnson, IR State Bureau

With hundreds of millions of dollars being cut from human services and education budgets, some advocates on Thursday urged passage of a bill to raise more state revenue by requiring income tax withholdings on sales of Montana real estate by out-of-state residents.

“This is efficient, effective, makes sense and brings in revenue that is already owed to the state by nonresidents to help mitigate the deep cuts that are moving forward in education, health and human services and other important public services and infrastructure,” said Tara Veazey of the Montana Budget and Policy Center.

Claudia Clifford of AARP Montana pointed to the budget cuts to programs that allow senior citizens to remain in their homes instead of going to assisted living or nursing homes.

“This is a way to get enough revenue for their needs,” she said.

Molly Severtson of the Policy Institute said if the out-of-state people who sell their Montana property don’t pay their taxes, “the tax burden is either shifted to Montanans or Montanans do with less.”

They were joined by the speakers for the MEA-MFT, Montana Women Vote, Disability Rights Montana and Montana Human Rights Network and Montana Small Business Alliance.

House Bill 222, by Rep. Dick Barrett, D-Missoula, would raise $4.3 million in new revenue over the next two years and is part of Gov. Brian Schweitzer’s plan to balance the budget.

It would require withholding of income taxes of nonresidents selling Montana real estate worth at least $250,000 to make sure capital gains taxes are paid. No withholding taxes would be required if the sellers were Montana residents or Montana businesses.

Barrett said 65 percent of nonresidents selling Montana real estate fail to file state tax returns and pay taxes on the sale. After the Revenue Department notifies them, 37 percent still don’t respond, compared with 4.3 percent of Montanans who respond after they are notified.

It was a reprise of past hearings as the Schweitzer administration has tried but failed to get a similar bill passed in each regular and one special session since taking office 2005.

Schweitzer’s budget director, David Ewer, said if the out-of-state Montana land owners don’t pay taxes on their profits from selling Montana land, “you or I pay it or we get less (government services).”

Gene Walborn, a Revenue Department administrator, said 17 other states, including Colorado, Oregon and Washington, have enacted nonresident withholding taxes on property sales.

But opponents, who have fought the bill since 2005, said the Revenue Department already has ample authority to go after people and businesses that owe taxes and that the agency has been given additional tools since then.

Robert Sewell of Missoula, a title company president who testified for the Montana Land Title Association, cited industry studies that show only 2.5 percent of all real estate sales since 2009 in 21 Montana counties involve sellers with out-of-state addresses with proceeds greater than $250,000.

“This seems to be a huge net to catch a few minnows,” he said.

William Gowen, a Helena title company executive, said this is the fifth time he has testified against the bill. The amount the Revenue Department says it will raise from the bill has dropped each time from $20 million in 2005 to the current $4.3 million, he said.

Joe Roberts, lobbyist for the Montana Association for Realtors, suggested having to fill out another form could add delays to real estate closings.

“We don’t condone tax evasion,” he said. “We don’t want any part of it. We think this is just a burdensome, cumbersome and expensive process to achieve it.

Others who opposed the bill were representatives of the Montana Society of CPAs, Montana Taxpayers Association and Montana Bankers.

The committee didn’t vote on the bill immediately.

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